Prominent economist Yukio Noguchi is one of the few who correctly predicted the collapse of Japan's bubble economy in 1987, warning the preceding euphoria was based on a major distortion in land prices.Now the doomsday prophet is making another terrifying prediction: Japan is likely to be devastated by a snowballing public debt that will bankrupt its government and trigger catastrophic hyperinflation."There is little hope," Noguchi said in an interview with The Japan Times at Waseda University's Graduate School of Finance in Tokyo. "Japan's fiscal conditions are so bad, it can no longer be fixed without causing inflation. I'm very pessimistic."Noguchi is not the only one deeply fretting the debt.They may still be a minority, but an increasing number of economists and market players are voicing deep concerns about Japan's fiscal sustainability and fear catastrophe may strike in the near future.

The Japanese public are the main holders of Japanese debt and Japan generally runs a trade surplus with the rest of the world. So Japan is simultaneously capitalised while the damage from any default means mostly the Japanese people that the hit.

LONDON — Railway companies in Europe are calling on Japan to open up its market to free competition amid claims Tokyo is creating unnecessary barriers to protect domestic manufacturers.UNIFE, the Association of the European Rail Industry, says Japan is abusing transportation ‘‘operational safety’’ clauses in free trade agreements to prevent EU firms from getting a foothold in the country.And EU Trade Commissioner Benita Ferrero-Waldner recently wrote in a letter to a British politician that Japan is ‘‘excessively invoking the so-called ‘operational safety clause’ to exclude foreign suppliers….’‘UNIFE’s call is backed by leaders in the English city of Derby, whose local firm, Bombardier, lost out to Hitachi Ltd in February 2009, when the Japanese giant won a 7.5 billion pounds contract to supply Britain’s intercity rail network with new carriages. This is thought to have been the world’s largest single rail contract.

Japan's Democratic-led government on Friday finalised a bill that would make it more difficult for companies to hire temporary workers as the ruling party sought to fulfil an election pledge that had upset business groups.Japanese companies have turned increasingly to temporary labour to get around rules that make it difficult and expensive to sack permanent staff during downturns. The new bill, which is expected to pass smoothly, would reverse labour-market liberalisation enacted by the previous government in 2004.The bill would ban manufacturers from contracting with third-party employment agencies for temporary labour. Business groups have previously clashed with the centre-left government of Yukio Hat-oyama, elected last year, over plans to reduce greenhouse gas emissions, mandate debt holidays and freeze the privatisation of Japan Post.

April 2 (Bloomberg) -- Japanese National Strategy Minister Yoshito Sengoku said the country should have a greater sense of urgency about the nation’s fiscal situation, comparing it to the plight of Greece.

“So far some have been crying wolf, but Greece’s situation isn’t entirely unrelated to Japan’s,” Sengoku said at a news conference in Tokyo today. “At the end of the day, Japan’s situation right now is not that good. There hasn’t been a sense of crisis about this, including from ourselves.”

Sengoku has been tasked with developing a plan for repairing the finances of a country that is burdened with the world’s largest public debt. He said last month that Japan has “extremely little room” for further stimulus spending, and clashed with Financial Services Minister Shizuka Kamei over a plan to raise deposit caps at the nation’s postal bank, the biggest holder of government bonds.

Japan Tries to Face Up to Growing Poverty Problem ->http://www.nytimes.com/2010/04/22/world/asia/22poverty.html

Quote:

MEMURO, Japan — Satomi Sato, a 51-year-old widow, knew she had it tough, raising a teenage daughter on the less than $17,000 a year she earned from two jobs. Still, she was surprised last autumn when the government announced for the first time an official poverty line — and she was below it.

Satomi Sato works mornings making boxed lunches. She said her family’s difficulties began in the late 1990s, when the economic slide worsened on the island of Hokkaido, as it did across much of rural Japan.Satomi Sato, a 51-year-old widow, delivering newspapers, one of her two jobs. She is raising a teenage daughter on less than $17,000 a year.

“I don’t want to use the word poverty, but I’m definitely poor,” said Ms. Sato, who works mornings making boxed lunches and afternoons delivering newspapers. “Poverty is still a very unfamiliar word in Japan.”

WASHINGTON — A top official of the International Monetary Fund on Sunday warned against rising vulnerability in Japan’s fiscal conditions amid snowballing public debts and called for an accelerated effort to put the nation’s finances in order.‘‘Although Japan’s problem should not be treated in the same way as the Greece debt crisis, its fiscal vulnerability is rising fairly high,’’ IMF Deputy Managing Director Naoyuki Shinohara said in an interview with Kyodo News.Japanese fiscal deficits have been financed by the nation’s high savings so far, but the pace of fiscal deterioration is ‘‘pretty high,’’ Shinohara said.In 2010, Japan’s outstanding public debt is projected to expand to nearly 200% of gross domestic product—by far the worst among industrialized countries

TOKYO (Nikkei)--Japan's fiscal health continued to deteriorate last fiscal year, with outstanding central government bonds, borrowings and financing bills ballooning 36.42 trillion yen on the year to a record 882.92 trillion yen as of March 31, according to Ministry of Finance data released Monday.

A large percentage of Japanese government bonds are owned by domestic institutional investors with a penchant for long-term investment, thereby lessening the possibility of the instruments facing a sudden sell-off. But Japan's soaring debt continues to fuel calls for action to quickly rebuild the government's fiscal health.

The MOF releases the central government debt numbers every quarter. The latest sharp increase was the result of 53.5 trillion yen in new JGB issuances in fiscal 2009 to fund economic stimulus measures and to offset falling tax revenue amid the turmoil from Lehman Brothers Holdings Co.'s collapse. Based on population estimates as of April, the central government debt burden totals roughly 6.93 million yen per capita. By contrast, the per capita figure for financially troubled Greece is an estimated 3 million yen or so, including local bonds.

Japan is scheduled to float 44.3 trillion yen in new government bonds to offset funding shortages for new policy measures in the fiscal 2010 budget. The MOF predicts Japan's debt could hit 973 trillion yen by the end of fiscal 2010.

Japan's outstanding public debt, including instruments like local bonds, accounted for 218.6% of gross domestic product at the end of 2009, according to the International Monetary Fund. The figure towers over comparable numbers of 84.8% and 68.7% for the U.S. and U.K., respectively.

But Japan's long-term interest rates remain low, despite the government's worsening financial situation. The benchmark 10-year Japanese government bond yield is currently holding around 1.3%, largely because of brisk demand from domestic institutional investors such as life insurance companies and banks. According to the Bank of Japan, domestic investors held 94.8% of JGBs as of 2009's end. This means that even if the government sharply increases its new bond issues, domestic investors will continue to snap them up against a backdrop of excess liquidity.

The contrarian manager of Eclectica, Hugh Hendry, says hyperinflation is inevitable as many countries face insurmountable debt. And to get there, policy makers need a major deflationary event.But what's surprising in Hendry's investors letter -- since he's been hating on China for weeks -- is that he says this crisis could come out of Japan.Hendry point to the decline of a Japanese credit rating agency as evidence that everyone is ignoring an unprecedented debt burden (via market folly):

Bank of Japan (8301) Governor Masaaki Shirakawa opposed the central bank underwriting of Japanese government bonds for the second time in a week, a day after Fitch Ratings lowered its outlook for the country because of rising levels of government indebtedness.

Underwriting government bonds may lead to rapid inflation, which won’t improve Japan’s fiscal position, Shirakawa said in an address to the Japan Society of Monetary Economics at Meiji University in Tokyo today. Underwriting JGBs would also may hamper bond issuance, raise yields on government debt and erode confidence in the yen, he said.

“Underwriting government bonds by a central bank, which may not appear problematic at first, will lead to limitless issuance of currencies and cause rapid inflation and devastate people’s life and economic activities,” Shirakawa said. “The improvement of fiscal balance can’t be achieved by causing inflation.”

Eclectica co-founder Hugh Hendry is one of the most outspoken fund managers in the country, both forthright and unafraid to be put his money where his mouth is. Indeed, he is the second biggest investor in his Eclectica Absolute Macro hedge fund, a go anywhere mandate dictated by Hendry’s top-down view.

The Scot started out at Baillie Gifford and, following a brief stint at Credit Suisse, joined Odey Asset Management after describing his first meeting with the eponymous Crispin Odey as ‘a meeting of minds’.

He chose to go it alone in 2005, launching Eclectica Asset Management where he is a partner and chief investment officer. A regular TV pundit, he has described talking to journalists as his worst vice, but whether he is right or wrong, he is always worth listening to.

Thirty percent of loans to companies afflicted by the Great East Japan Earthquake are past due, as well as 10 percent of housing loans to earthquake victims, a Financial Services Agency survey showed.The overdue loans total 550 billion yen ($6.8 billion), the agency said.Most of the outstanding loans are unlikely be repaid, requiring financial institutions to take action, such as forgiving debt repayment, the FSA said.The FSA conducted a survey on outstanding loan balances as of the end of May on three major banks in Japan and 38 regional financial institutions based in disaster-hit Iwate, Miyagi and Fukushima prefectures.Of those surveyed, 39 responded.Of the total, 452 billion yen is owed by companies, which accounts for 30 percent of the outstanding loans for companies.